Mr. Lion, who is in the 37 percent tax bracket, is the soleshareholder of Toto,Inc., which manufactures greeting cards. Toto’saverage annual net profit (before deduction of Mr. Lion’s salary)is $290,000. For each of the following cases, compute the incometax burden on this profit. (Ignore any payroll taxconsequences.)
A) Mr. Lion’s salary is $100,000, and Toto pays nodividends.
B)Mr. Lion’s salary is $100,000, and Toto distributes itsafter-tax income as a dividend.
C) Toto is an S corporation. Mr. Lion’s salary is $100,000, andToto makes no cash distributions. Assume Toto's ordinary incomequalifies for the 20 percent Section 199A deduction.
D) Toto is an S corporation. Mr. Lion draws no salary, and Totomakes no cash distributions. Assume Toto's ordinary incomequalifies for the 20 percent Section 199A deduction.
E)Toto is an S corporation. Mr. Lion draws no salary, and Totomakes cash distributions of all its income to Mr. Lion. AssumeToto's ordinary income qualifies for the 20 percent Section 199Adeduction.
